Rating Scales & Definitions

International Scale Ratings, National Scale Ratings & Definitions

Rating Scales & Definitions

Understanding GCR’s ratings – Limitations and usage

GCR defines credit risk as the risk that an entity may not meet its contractual financial obligations as they come due. Credit ratings do not address other risks such as, but not limited to, fraud, organised crime, market liquidity, market value risk, or price volatility. Credit ratings are opinions and not statements of current or historical fact. They do not constitute recommendations to buy, sell or hold any security, or provide investment or financial advice, for example regarding the suitability of an investment or adequacy of market price. It is our expectation that each investor will make its own study and evaluation of each security or issuer that is under consideration.

Ratings assigned are opinions and are accorded by a panel of qualified individuals based on methodologies that are evaluated regularly and updated. Therefore, one person is not solely responsible for a rating, but rather ratings are the collective work of GCR’s experiences.

Users of GCR’s ratings should take note of the general limitations on the nature of the information (be it public or non-public information and documents) provided during the course of the rating process. In issuing and maintaining its ratings, GCR relies on factual information received from rated clients and also other sources GCR believes to be reliable. As a starting point, GCR conducts a practical investigation into the factual and/or perceived accuracy of the information relied on in accordance with its rating methodology. Nevertheless, rated clients may choose not to share certain information with GCR, a fact which may not be immediately apparent unless the supplied information is verified by independent specialist third-parties. Ultimately, the rated client is responsible for the accuracy of the information supplied to GCR. Further, ratings are inherently forward-looking and embody assumptions and predictions about future events that, by their nature, cannot be verified as facts. As a result, despite any verification of current facts, ratings can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. If any such information should turn out to contain misrepresentations or to be otherwise misleading, the rating associated with that information may not be appropriate. The assignment of any rating should not be considered as a guarantee of the accuracy, completeness, or timeliness of the information relied on in connection with the rating or the results obtained from the use thereof.

Finally, a rating may be changed, qualified, placed on Rating Watch or withdrawn as a result of changes in, additions to, accuracy of, unavailability of or inadequacy of information, or for any reason GCR sees fit.

Explanation of ratings and other opinions

GCR publishes opinions using a variety of scales. The two main categories can be divided into credit ratings and non-credit ratings scales. The latter relates to opinions on operational and financial strength and includes credit assessments, servicer quality, asset manager management quality and funds ratings. GCR’s credit ratings provide a forward looking opinion on either 1) the relative ability of an entity to meet its financial obligations as they fall due (issuer credit rating) or 2) the creditworthiness of an obligor with respect to a specific financial obligation, class of financial obligations or a specific financial program (issue credit ratings). GCR accords both long term and short term credit ratings. Short term credit ratings are generally assigned to obligations considered short term in the relevant market, typically with an original maturity of no more than 365 days. Long term credit ratings relate to financial commitments with maturities of longer than 12 months.

GCR accords both National and International scale ratings and clearly specifies which is being rated on the front page of each rating report. Additionally, national scale ratings are denoted by a special identifier for the country concerned. The rating methodologies and rating scales utilised in the accordance of both types of ratings are very similar, but the key difference is that one scale measures the capacity to meet obligations relative to a global peer group (International Scale ratings), while the other measures capacity to meet obligations relative to the lowest credit risk within a country (National Scale ratings). An explanation of the difference between an international foreign currency or international local currency (“International Scale”) ratings and a domestic local currency (“National Scale”) rating is summarised below:

National Scale Ratings

The need for national scale ratings arose in certain capital markets where the international rating scale provided inadequate differentiation among credits due to the low sovereign ratings accorded in those markets. This is particularly true in emerging markets. As such, national scale ratings are widely used in Africa.

The domestic local currency ratings assigned by GCR are tiered against an assumed “best possible” rating of ‘AAA' in each country and, therefore, do not incorporate the sovereign risks of a country (namely transfer and convertibility risks). Such ratings are designed to give an indication of the relative credit risk only within a specific country and are not comparable across different countries. Accordingly, a Kenya Shilling rating accorded to a Kenyan organisation is not comparable to a South African Rand rating accorded to a South African organisation. A modifier (based on the ISO International country codes – alpha 2) reflects that the rating is a national scale rating. The modifier identifies to which country the rating relates; for example ‘ZA’ means South Africa. For a full list of the ISO International country codes – alpha 2 please click on the following link ISO International Code

GCR’s National Scale credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.

International Scale Ratings

International scale ratings relate to either foreign currency or local currency commitments, and in both instances assess the capacity to meet these commitments using a globally applicable scale. As such, both are internationally comparable.

International foreign currency (International FC) ratings measure the ability of an organisation to service foreign currency obligations, taking into account transfer and convertibility risk. Transfer and convertibility risk relates to the risk of capital and exchange controls being imposed by a sovereign authority that would prevent or materially impede the private sector’s ability to convert local currency into foreign currency and transfer to non-resident creditors. As such, typically no organisation or debt issue in a country can be rated higher than the country's “sovereign risk rating”. However, exceptions can arise; for instance in structured finance transactions (if there is an opportunity to pierce the sovereign cap, e.g. by trapping cash flows offshore) or in the instance of strong corporate entities (exceptionally strong corporate entities that are shielded from transfer and convertibility constraints may also be rated above the sovereign ceiling). Such considerations as substantial export earnings, foreign assets and offshore production, or foreign parents or strategic partners that would provide financial support in the form of foreign exchange, could enable corporate entities to be rated above the sovereign ceiling.

International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions. Local currency ceilings are applied to every country in order to facilitate the assignment of local currency ratings to issues and/or issuers. The local currency ceiling summarises the general country-level risks (excluding transfer and convertibility risk) that should be taken into account in assigning local currency ratings to locally domiciled obligors or locally originated structured transactions. They indicate the rating level that will generally be assigned to the financially strongest obligations in the country, with the proviso that obligations benefiting from support mechanisms based outside the country (or area) may on occasion be rated higher.

In cases where GCR accords International Scale ratings, the respective rating report and other related rating notifications will clearly specify whether the rating accorded is an International FC or International LC rating.

Default definition

Issuer rating

Limited Default (LD): Defaulted on one or more of its obligations, failing to meet scheduled principal and/or Interest payments.

Default (DD): Defaulted on all obligations, or is likely to default on all or substantially all of its obligations as they fall due, thus failing to meet all or substantially all scheduled principal and/or Interest payments.

Issue rating

Default (DD): Defaulted on all obligations, or is likely to default on all or substantially all of its obligations as they fall due, thus failing to meet all or substantially all scheduled principal and/or Interest payments.

Rating Status Identifiers

Rating Outlook

A Rating Outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. It reflects financial or other trends that have not yet reached the level that would trigger a rating action, but which may do so if such trends continue. The outlook may be defined as being "Positive" (the rating symbol may be raised), "Negative" (the rating symbol may be lowered) or "Evolving" (the rating symbol may be raised or lowered). The latter is utilised where the fundamental trend has conflicting elements of both positive and negative. An outlook may be defined as “Stable” if there is nothing to suggest that the rating will change. An outlook is not necessarily a precursor of a rating change or future Rating Watch action.

Under Review

Failure to carry out a full review of a rated entity within the designated timeframe, either through lack of information or delays in finalisation, may lead us to place the rating “Under Review". The rating status will typically extend for no longer than 1 month, until the triggering event is resolved or the outcome is predictable with a high enough degree of certainty. A rated entity is then either taken off ‘Under Review’ when the rating is upgraded, downgraded or confirmed, or the rating is withdrawn.

Rating Watch

Rating Watch indicates that a rating is under review for possible change in the short-term. The rating movement may be either positive or negative, with further insight and explanation provided in the rating rationale. Ratings not on Rating Watch can be raised or lowered without being placed on Rating Watch first, if circumstances warrant such an action. Rating Watch is typically event-driven, and generally resolved over a short period (typically 6 months). The event driving the watch may be anticipated or have already occurred, but in both cases the exact rating implications remain undetermined. The watch period is to gather further information and to further analyse this information, with a view to determining a rating outcome. Watch is also used where rating implications are already clear but a triggering event exists. The watch will extend to cover a period until the triggering event is resolved or the outcome is predictable with a high enough degree of certainty to resolve. A rated entity is then taken off Rating Watch when the rating is upgraded, downgraded or confirmed. Rating Watch does not mean that a rating change is certain.

Rating Scales & Definitions

Credit ratings

The rating scales and definitions utilised in the accordance of both international scale and national scale ratings are very similar, but the key difference is that one scale measures the capacity to meet obligations relative to a global peer group (international scale) while the other measures credit quality relative to its local peers (national scale).

INTERNATIONAL SCALE RATINGS

INTERNATIONAL SHORT TERM DEBT RATING SCALE:

GCR's Rating Symbols and Definitions Summary

A short term debt rating rates an organisation's general unsecured creditworthiness over the short term (i.e. over a 12 month period). Such a rating provides an indication of an entity’s ability to honour any unsecured short term debt obligations, including commercial paper, bank borrowings, banker’s acceptances (“BA’s”) and negotiable certificates of deposit (“NCD’s”). Short term ratings and definitions apply to both issuers and obligations (‘issues’).

Very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor.

A1-

High certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small.

Good Grade

A2

Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small.

Satisfactory Grade

A3

Satisfactory liquidity and other protection factors qualify issues as to investment grade. However, risk factors are larger and subject to more variation.

Low Grade

B

Speculative investment characteristics. Liquidity is not sufficient to insure against disruption in debt service. Operating factors and market access may be subject to a high degree of variation.

C

Default is a real possibility

Default

LD/DD

Defaulted on one or more of its obligations, failing to meet scheduled principal and/or Interest payments (LD). Defaulted on all obligations, or is likely to default on all or substantially all of its obligations as they fall due, thus failing to meet all or substantially all scheduled principal and/or Interest payments (DD).

IMPORTANT NOTE: GCR differentiates its ratings assigned to obligations of a structured finance nature by adding an (sf) modifier to such ratings. For example, AA(sf).

INTERNATIONAL LONG TERM DEBT RATING SCALE:

GCR's Rating Symbols and Definitions Summary

A long term debt rating is an opinion of the relative credit risk of long term debt obligations. Long term debt ratings and definitions apply to both issuers and obligations (‘issues’). In terms of issue credit ratings, it is possible that different issues by a single issuer could be accorded different ratings, depending on the underlying characteristics of each issue (e.g. is it a senior or a subordinated debt instrument, is it secured or unsecured and, if secured, what is the nature of the security). This is clearly specified on the front page of each rating report and all other rating notifications.

Investment Grade

AAA

Highest credit quality. The risk factors are extremely low.

AA+AA
AA-

Very high credit quality. Protection factors are very strong. Adverse changes in business, economic or financial conditions would increase investment risk although not significantly.

A+AA-

High credit quality. Protection factors are good. However, risk factors are more variable and greater in periods of economic stress.

BBB+BBBBBB-

Adequate protection factors and considered sufficient for prudent investment. However, there is considerable variability in risk during economic cycles.

Non-investment Grade

BB+
BB
BB-

Below investment grade but capacity for timely repayment exists. Present or prospective financial protection factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently within this category.

B+BB-

Below investment grade and possessing risk that obligations will not be met when due. Financial protection factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes.

CCC

Well below investment grade securities. Considerable uncertainty exists as to timely payment of principal or interest. Protection factors are narrow and risk can be substantial with unfavourable economic/industry conditions, and/or with unfavourable company developments.

LD/DD

Defaulted on one or more of its obligations, failing to meet scheduled principal and/or Interest payments (LD). Defaulted on all obligations, or is likely to default on all or substantially all of its obligations as they fall due, thus failing to meet all or substantially all scheduled principal and/or Interest payments (DD).

IMPORTANT NOTE: GCR differentiates its ratings assigned to obligations of a structured finance nature by adding an (sf) modifier to such ratings. For example, AA(sf).

INTERNATIONAL CLAIMS PAYING ABILITY RATING SCALE:

GCR's Rating Symbols and Definitions Summary

Such ratings provide a relative assessment of the financial strength of an insurance company. Claims Paying Ability (“CPA”) ratings are exclusively assigned to short term insurance, reinsurance and healthcare companies and rate the ability of the entity to meet its policyholder/member and assumed reinsurance obligations on a timely basis.

AAA

Highest claims paying ability. The risk factors are considered low.

AA+AAAA-

Very high claims paying ability. Protection factors are strong. Risk is modest, but may vary slightly over time due to economic and/or underwriting conditions.

A+AA-

High claims paying ability. Protection factors are above average although there is an expectation of variability in risk over time due to economic and/or underwriting conditions.

BBB+BBBBBB-

Adequate claims paying ability. Protection factors are adequate although there is considerable variability in risk over time due to economic and/or underwriting conditions.

BB+BBBB-

Moderate claims paying ability. The ability of these organisations to discharge obligations is considered moderate and thereby not well safeguarded in the event of adverse future changes in economic and/or underwriting conditions.

B+BB-

Possessing substantial risk that policyholder and contract-holder obligations will not be paid when due. Judged to be speculative to a high degree.

CCC

Company has been, or is likely to be, placed under an order of the court.

INTERNATIONAL FINANCIAL STRENGTH RATING SCALE:

GCR's Rating Symbols and Definitions Summary

The Financial strength rating (“FSR”) is an opinion of the financial security characteristics of companies that only conduct life assurance business. A FSR takes cognisance of the ability to honour contractual minimum policyholder obligations, including guaranteed investment contracts.

AAA

Extremely strong financial security characteristics and is the highest FSR assigned by GCR.

AA+AAAA-

Has very strong financial security characteristics, differing only slightly from those rated higher.

A+AA-

Has strong financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than assurers with higher ratings.

BBB+BBBBBB-

Has good financial security characteristics, but is much more likely to be affected by adverse business conditions than assurers with higher ratings.

BB+BBBB-

Has vulnerable financial security characteristics, which might outweigh its strengths. The ability of these companies to discharge obligations is not well safeguarded in the future.

B+BB-

Possessing substantial risk that obligations will not be paid when due. Judged to be speculative to a high degree.

CCC

Assurer has been, or is likely to be, placed under an order of the court.

NATIONAL SCALE RATINGS

The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national rating will be assigned to the lowest relative risk within that country, which in most cases, but not always, will be the sovereign state. As such, a national scale ‘A’ accorded to an issuer or obligation in one country cannot be compared to an ‘A’ rating in another country. Comparison between different national scales or between an individual national scale and the international rating scale are therefore inappropriate and potentially misleading. National scale ratings are thus unique and are designed to serve the needs of a specific local market. Consequently they are identified by the addition of a special identifier for the country concerned, such as ‘AA(ZA)’ for national scale ratings in South Africa.

Limitations of the National Rating Scale :

- Specific limitations relevant to the National rating scale include:

- National scale ratings can only be compared with other national ratings in the same country. There is a certain correlation between national and international ratings but there is not a precise translation between the scales. The implied probability of default of a given national scale rating will vary over time.

- The value of default studies for national ratings can be limited. Due to the relative nature of national scales, a given national scale rating is not intended to represent a fixed amount of default risk over time. As a result, a default study using only national ratings may not give an accurate picture of the historical relationship between ratings and default risk. Users should exercise caution if they wish to infer future default probabilities for national scale ratings using the historical default experience with international ratings and mapping tables to link the national and international ratings.

- The terms “investment grade” and “speculative grade” have established themselves over time as shorthand to describe the categories ‘AAA’ to ‘BBB’ (investment grade) and ‘BB’ to ‘D’ (speculative grade). However, the terms “investment grade” and “speculative grade” are often used when referring to national scale ratings; however, this is incorrect due to the short history of national scale ratings and by extension the limited default data available.

- As with ratings on any scale, the future will not necessarily follow the past.

- There has not been a comprehensive global study of default history among entities with national scales to show that their ex-post default experience has been consistent with ex-ante probabilities implied. This is due to the relatively short history of ratings in emerging markets and the restrictive relative nature of the national scales.

- The above list is not exhaustive, and is provided for the reader’s convenience. Readers are requested to review the section Understanding Credit Ratings - Limitations and Usage for further information on the limitations of the agency’s ratings.

- The national scale credit rating definitions include a country prefix denoted as 'xx'. For a full list of the ISO International country codes – alpha 2 please click on the following link ISO International Code

NATIONAL SHORT TERM DEBT RATING SCALE:

GCR's Rating Symbols and Definitions Summary

A1+(xx)

Highest certainty of timely payment relative to other issuers or obligations in the same country. Short-term liquidity, including internal operating factors and/or access to alternative sources of funds is high. Risk factors are extremely low relative to others in the same country.

A1(xx)

Very high certainty of timely payment relative to other issuers or obligations in the same country. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor.

A1-(xx)

High certainty of timely payment relative to other issuers or obligations in the same country. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small.

A2(xx)

Good certainty of timely payment relative to other issuers or obligations in the same country. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small.

A3(xx)

Satisfactory liquidity and other protection factors relative to other issuers or obligations in the same country. However, risk factors are larger and subject to more variation.

B(xx)

Highly uncertain capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. Liquidity is not sufficient to insure against disruption in debt service. Operating factors and market access may be subject to a high degree of variation.

C(xx)

Possibility of not meeting financial commitments is highly likely relative to other issuers or obligations in the same country.

LD/DD(xx)

Defaulted on one or more of its obligations, failing to meet scheduled principal and/or Interest payments (LD). Defaulted on all obligations, or is likely to default on all or substantially all of its obligations as they fall due, thus failing to meet all or substantially all scheduled principal and/or Interest payments (DD).

IMPORTANT NOTE: GCR differentiates its ratings assigned to obligations of a structured finance nature by adding an (sf) modifier to such ratings. For example, AA(sf).

NATIONAL LONG TERM DEBT RATING SCALE:

GCR's Rating Symbols and Definitions Summary

AAA(xx)

Highest credit quality relative to other issuers or obligations in the same country. The risk factors are extremely low relative to others in the same country.

AA+(xx)AA(xx)
AA-(xx)

Very high credit quality relative to other issuers or obligations in the same country. Protection factors are very strong. Adverse changes in business, economic or financial conditions would increase investment risk although not significantly.p>

A+(xx)A(xx)A-(xx)

High credit quality relative to other issuers or obligations in the same country. Protection factors are good. However, risk factors are more variable and greater in periods of economic stress.

BBB+(xx)BBB(xx)BBB-(xx)

Adequate protection factors relative to other issuers or obligations in the same country. However, there is considerable variability in risk during economic cycles.

BB+(xx)
BB(xx)
BB-(xx)

Capacity for timely repayment exists, however, denotes elevated default risk relative to other issuers or obligations in the same country. Present or prospective financial protection factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently within this category.

B+(xx)B(xx)B-(xx)

Possessing risk that obligations will not be met when due relative to other issuers or obligations in the same country. Financial protection factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes.

CCC(xx)

Considerable uncertainty exists as to timely payment of principal or interest relative to other issuers or obligations in the same country. Protection factors are narrow and risk can be substantial with unfavourable economic/industry conditions, and/or with unfavourable company developments.

LD/DD(xx)

Defaulted on one or more of its obligations, failing to meet scheduled principal and/or Interest payments (LD). Defaulted on all obligations, or is likely to default on all or substantially all of its obligations as they fall due, thus failing to meet all or substantially all scheduled principal and/or Interest payments (DD).

IMPORTANT NOTE: GCR differentiates its ratings assigned to obligations of a structured finance nature by adding an (sf) modifier to such ratings. For example, AA(sf).

NATIONAL CLAIMS PAYING ABILITY RATING SCALE:

GCR's Rating Symbols and Definitions Summary

AAA(xx)

Highest claims paying ability relative to other issuers or obligations in the same country. The risk factors are considered low.

AA+(xx)AA(xx)AA-(xx)

Very high claims paying ability relative to other issuers or obligations in the same country. Protection factors are strong. Risk is modest, but may vary slightly over time due to economic and/or underwriting conditions.

A+(xx)A(xx)A-(xx)

High claims paying ability relative to other issuers or obligations in the same country. Protection factors are above average although there is an expectation of variability in risk over time due to economic and/or underwriting conditions.

BBB+(xx)BBB(xx)BBB-(xx)

Adequate claims paying ability relative to other issuers or obligations in the same country. Protection factors are adequate although there is considerable variability in risk over time due to economic and/or underwriting conditions.

BB+(xx)BB(xx)BB-(xx)

Moderate claims paying ability relative to other issuers or obligations in the same country. The ability of these organisations to discharge obligations is considered moderate and thereby not well safeguarded in the event of adverse future changes in economic and/or underwriting conditions.

B+(xx)B(xx)B-(xx)

Possessing substantial risk that policyholder and contract-holder obligations will not be paid when due relative to other issuers or obligations in the same country. Judged to be very high risk.

CCC(xx)

Company has been, or is likely to be, placed under an order of the court.

NATIONAL FINANCIAL STRENGTH RATING SCALE:

GCR's Rating Symbols and Definitions Summary

AAA(xx)

Extremely strong financial security characteristics relative to other issuers or obligations in the same country and is the highest FSR assigned by GCR.

AA+(xx)AA(xx)AA-(xx)

Has very strong financial security characteristics relative to other issuers or obligations in the same country, differing only slightly from those rated higher.

A+(xx)A(xx)A-(xx)

Has strong financial security characteristics relative to other issuers or obligations in the same country, but is somewhat more likely to be affected by adverse business conditions than assurers with higher ratings.

BBB+(xx)BBB(xx)BBB-(xx)

Has good financial security characteristics relative to other issuers or obligations in the same country, but is much more likely to be affected by adverse business conditions than assurers with higher ratings.

BB+(xx)BB(xx)BB-(xx)

Has vulnerable financial security characteristics relative to other issuers or obligations in the same country, which might outweigh its strengths. The ability of these companies to discharge obligations is not well safeguarded in the future.

B+(xx)B(xx)B-(xx)

Possessing substantial risk that obligations will not be paid when due relative to other issuers or obligations in the same country. Judged to be very high risk.

CCC(xx)

Assurer has been, or is likely to be, placed under an order of the court.

Non-Credit ratings

In addition, GCR provides specialist ratings on other topics. Many of these ratings are offered internationally, but in most cases on a national basis applying appropriate rating identifiers.

MANAGEMENT QUALITY RATINGS:

GCR's Rating Symbols and Definitions Summary

The management quality (“mq”) ratings provide institutional investors with an independent appraisal of asset management companies. The ratings assess an entity’s organisational structure, risk management characteristics and operational controls, and provide the market with an opinion on the overall quality of the organisation, including management characteristics and operational practices. The ratings emphasise qualitative over quantitative factors and are expressed in the form of a scale ranging from ‘AAA’ (Excellent) to ‘BB’ (Poor). Although the assessment incorporates a review of the firm’s investment performance track record, the ratings are not intended to consider the prospective performance of specific funds managed by the company.

AAA

Entities rated AAA(mq) are judged to exhibit an excellent management and control environment, which meets or exceeds best international practice and benchmarks

AA+AAAA-

Entities rated AA(mq) are judged to exhibit a very good management and control environment.

A+AA-

Entities rated A(mq) are judged to exhibit a good management and control environment.

BBB+BBBBBB-

Entities rated BBB(mq) are judged to exhibit an adequate management and control environment.

BB+BBBB-

Entities rated BB(mq) are judged to exhibit a poor management and control environment.

FUND RATINGS:

GCR's Rating Symbols and Definitions Summary

A fund rating is an independent assessment of a specific fund’s exposure to factors that could lead to unexpected Net Asset Value and total return volatility. Fund Ratings indicate an opinion regarding the fund’s ability to preserve principal value under varying market conditions that may be affected by credit risk, interest rates, liquidity, as well as other market conditions. The ratings emphasise qualitative over quantitative factors and are expressed in the form of a scale ranging from ‘AAA’ (highest quality and lowest volatility) to ‘BB’ (low quality and high volatility).

AAA

Funds rated AAA(f) possess levels of risk at that of a portfolio comprised of the highest quality government securities and demonstrate the lowest volatility.

Funds rated A(f) possess low levels of risk and demonstrate moderate volatility, although there is considerable variability in risk in periods of economic stress.

BBB+BBBBBB-

Funds rated BBB(f) possess reasonable levels of risk and relatively high levels of volatility, with a much lower ability to withstand future stress situations.

BB+BBBB-

Funds rated BB(f) possess high levels of risk and high volatility.

SERVICER QUALITY RATINGS:

GCR's Rating Symbols and Definitions Summary

GCR will generally require an originator or servicer to be rated as part of a structured transaction. The ‘SQ’ rating considers the operational and financial stability of a servicer, as well as its ability to respond to changing market conditions. This assessment is based on a servicer’s organisational structure and management strength, its financial profile, information technology and reporting capabilities, as well as its strategic goals. Currently, GCR’s servicer ratings are confined to South Africa only, with structured finance ratings very limited throughout the rest of Africa. The SQ rating scale is as follows:

SQ1

Strong combined servicing ability and servicing stability.

SQ2

Above average combined servicing ability and servicing stability.

SQ3

Average combined servicing ability and servicing stability.

SQ4

Below average combined servicing ability and servicing stability.

SQ5

Weak combined servicing ability and servicing stability.

Where appropriate, a "+" or "-" modifier will be appended to the SQ2, SQ3, and SQ4 rating category and a "-" modifier will be appended to the SQ1 rating category. A "+" modifier indicates the servicer ranks in the higher end of the designated rating category. A "-" modifier indicates the servicer ranks in the lower end of the designated rating category.

LONG TERM AND SHORT TERM DEBT RATING LINKAGE:

In terms of GCR’s long term and short term debt ratings, a linkage has typically existed between the two. While there are a large number of distinct factors that drive short term ratings, the linkage between the two reflects the inherent importance of liquidity and near-term concerns within the assessment of the longer term credit profile. The table below is a guide only, and a break in the linkage may occur where analytically merited.

Long Term Rating

Short Term Rating

AAA

A1+

AA+

A1+

AA

A1+

AA-

A1+

A+

A1 or A1+

A

A1- or A1

A-

A2 or A1-

BBB+

A2 or A1-

BBB

A3 or A2

BBB-

A3

BB+

A3 or B

BB

B

BB-

B

B+

B

B

B

B-

B

CCC

C

LD/DD

LD/DD

GCR MAPPING TABLE - SOUTH AFRICA

National ratings were developed for use mainly in emerging markets with non-investment grade or low-investment grade sovereign ratings. With little or no default history in these markets, National ratings are designed to indicate relative creditworthiness only. By making available a complete range of notches on a separate National scale, they permit more credit differentiation than is possible on the International scale.

The relationship between the National and International local currency ratings assigned within a single jurisdiction is not rigid. By definition, a notch on the International scale usually corresponds to several notches on the National scale and the relationship between the two scales may change over time, as more entities are rated or the sovereign rating changes. Not every entity will be rated on both scales. However, the principle of consistent rating relativities will hold.

GCR maintains a mapping table that documents the relationship that exists between the National and International local currency ratings in certain jurisdictions. Where there is external demand, these mappings are published on this site.

GCR International Scale to National Scale Mapping Table – South Africa ( 2017-04-26)